March 7, 2014
To the Board of Directors and Residents of Montgomery Village, Maryland
As management of the Montgomery Village Foundation, Inc. (“MVF”), we offer readers of the Foundation’s financial statements this narrative overview and analysis of the financial activities of the Montgomery Village Foundation, Inc. for the year ended December 31, 2013.
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Financial Summary & Highlights
· Total net assets were $12,248,167 as of December 31, 2013, an increase of $154,587 over December 31, 2012. Since 2007, net assets have increased a total of $4,868,370 as a result of many cost saving initiatives being implemented—evaluating positions for elimination or changed to better align with the business need, bidding of professional services that had not been renegotiated for many years, implementing new and more efficient software systems, and in 2012, the transition to an outsourced landscape vendor.
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· The change in net assets (i.e. net income) for 2013 was an increase of $154,587 compared to an increase in 2012 of $602,383. Additionally, in 2013, Operating Fund net assets decreased by $480,811 vs. an increase of $43,909 in 2012. The decrease in 2013 was the result of the MVF Board decision to not raise assessments in 2012 and 2013 due to the accumulation of undesignated reserves from 2008 – 2011. The 2013 budget planned to use $803,154 of the surplus undesignated reserves, thus the actual results exceeded budgeted expectations.
· As of December 31, 2013, the Foundation reported unrestricted net assets of $5,392,078 (Operating Fund $1,111,000 and Fixed Asset Fund $4,281,078), temporarily restricted net assets of $5,109 and Board designated net assets of $6,850,980.
· The Foundation’s assessment receivables’ increased $165,623 in 2013 and now stands at a net realizable value of $793,437 vs. $627,814 in 2012. Included in this amount is a $285,792 allowance for doubtful accounts.
· The Foundation’s cash and cash equivalents as of December 31, 2013 were $1,769,074 and investments were $6,385,310 which comprised 61.3% of the Foundation’s total assets.
· Total unrestricted revenues were $7,398,214 for the year ended December 31, 2013 as compared to $7,419,652 as of December 31, 2012.
· Capital Contribution fees received through December 31, 2013 were $152,970 as compared to $93,310 as of December 31, 2012. This increase included a 1-time payment from the sale of the Rothbury Apartments early in 2013. Excluding the Rothbury sale amount, Capital contribution revenues exceeded 2012 by 20,060 or 21.5%.
· Total expenses increased $185,327 from 2012 to 2013. ($7,138,973 in ‘13 vs. $6,953,646 in ‘12).
· The 2013 contribution to reserves was $950,000. This reflects the contribution necessary to maintain the Reserve Fund pursuant with the MVF Board’s decision to fund the Reserve at 75% of the projected replacement cost per the 2007 reserve study. The 2007 reserve study is currently in the process of being updated and is expected to be implemented in 2014.
· Capital expenditures for the year ended 2013 totaled $1,008,392 vs. $626,920 in 2012 and a 2013 budget of $2,928,942 (Reserve and Operating). 2013 capital expenses included:
o Computer/IT, phone, office equipment $20,706
o Lake Whetstone/Theater pond fountain 11,723
o South Valley Park Restroom 37,411
o AR Pavillion 5,000
o Ed Desimon 122,837
o Other park related replacements 43,823
o Whetstone Pool 571,514
o SW pool heater/shed 27,914
o Other Community Center replacements 39,158
o Pool equipment replacements 49,544
o ADA equip 13,244
o Tennis court repairs 28,422
o Lake Marion Community Center 37,096
The variance between the budget and the actual capital expenditures for 2013 was primarily due to the actual payments made to the pool contractor for the Whetstone pool renovation being spread over the last few months of 2013 and the first 6 months of 2014 vs. the budget where the entire cost was included in 2013. The Whetstone pool renovation project will cost approximately $1.8M.
Overview of the Financial Statements
The Montgomery Village Foundation, Inc.’s basic financial statements comprise the following: 1) statement of financial position, 2) statement of activities and changes in net assets, 3) statement of cash flows and 4) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.
The Foundation’s financial statements have been prepared in accordance with Financial Accounting Standards Board’s ASC 958-210.
Basic Financial Statements
The statement of financial position presents information on all of the Montgomery Village Foundation, Inc.’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Foundation is improving or deteriorating. The statement of financial position can be found on page 8 of the auditors report.
The statement of activities and changes in net assets presents information showing how the Foundation’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. The statement of activities and changes in net assets can be found on page 9 of the auditors report.
The statement of cash flows presents information on the sources and uses of the Foundation’s cash accounts. The statement of cash flows can be found on page 10 of the auditors report.
The notes to the financial statements will provide additional information that is essential to a full understanding of the data provided in the basic financial statements and supplemental schedules. The notes to the financial statements can be found on pages 11-22 of the auditors report.
Included on pages 24 through 31 of the auditors report is additional information which provides a detailed view of MVF’s funds and Operating and Reserve sub-funds. The purpose of these supplemental schedules is for analysis and is not a required part of the basic financial statements.
Fund accounting - The Foundation utilizes fund accounting for internal financial reporting. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The financial structure of the Foundation consists of three core funds. The first is used to account for the operations of the business activities (Operating Fund), the second holds the capital assets (Fixed Asset Fund), and the third invests designated funds for the future repair and replacement of Foundation assets (Reserve Fund). Of these, it is the Operating Fund which administers the primary activities within several sub-funds. These include:
Montgomery Village Foundation Fund
This Fund provides for the general governance, operation, and maintenance of common properties (parks and lakes), architectural standards and communications. Assessments are levied on all members of the Foundation to support this function.
Designated User Fund
This Fund provides for the operation and maintenance of the community centers, pools, and tennis courts owned by the Foundation. Assessments are levied only on members who are designated to use these facilities.
Poplar Spring Fund
This Fund provides general governance, covenant and architectural standards, and maintenance of an entrance sign and land for this group of 18 homes.
User Fee Fund
This Fund provides fee based recreation programs and activities.
Community Management Fund
This Fund provides management services, at cost, to the homes corporations and condominium associations within Montgomery Village that contract for the service. Revenue is generated from the contracts signed with those homes corporations and/or condominium associations.
Maintenance Activity Fund
Effective December 31, 2011, the Maintenance Activity Fund was dissolved with the Board of Directors approval to outsource these activities effective January 1, 2012.
Budgetary Information
The Foundation Board adopts an annual budget. The 2013 budget did not include an increase in assessments for either the Montgomery Village Foundation Fund or the Designated User Fund.
The 2013 budget provided funds for a 2% general salary increase, a $20 per pay period increase for staff benefits, and a contribution to reserves of $950,000. The 2013 operating and reserve budgets not only continued successful programs (farmers market, expanded lawn theater series, dive-in movie nights, and the Great Pumpkin Race/Fall Festival) but began the funding for the future construction of the trail system, the Whetstone Pool, and the continuation of construction on the South Valley Park restroom/concession building. The 2013 budget also funded the “flourish” branding campaign with the new addition of an annual magazine and the purchase of defibrillators for MVF facilities.
Operating Fund Budget Variances:
Assessment Collection Fees (MVF & DU Funds) – Revenue from collection fees were significantly less than the budget due to MVF’s decision to employee an in-house General Counsel in January 2013. By hiring the in-house counsel, fees were no longer paid to an outside attorney thus did not get charged back to owners accounts and reported as MVF collections fee revenue. Fees such as process server and other court related filing fees continued to be passed on to the delinquent owners and included as revenue.
Management Fee income (Community Management Fund) – In 2013, the Community Management Fund was tasked with finding revenues to cover an expected budget shortage. While some revenue sources did increase in 2013, the majority was made up by appropriately managing departmental costs.
Advertising revenue (MVF Fund) – The unfavorable variance demonstrates the challenges that continue to exist in the print advertising market place. Additionally, one planned event included in the budget was cancelled and revenues from most other special events were less than expected and less than the prior year.
Capital Contribution Fee (MVF Fund) – The favorable revenue was due to an increase in home sales in 2013 and the sale of the Rothbury apartment complex. The sale of the Rothbury complex added $39,600 in January 2013 while the overall increase in home sales increased revenues by 21.5% vs. 2012 and 41.7% vs. the budget. The Capital Contribution Fee imposes a 1/10th of 1 percent fee on the sale of all Village properties. This revenue was transferred to the Reserve Fund for use as designated by the MVF By-Law amendment.
Other income (MVF/CM Funds) – The favorable variance is primarily due to significant increases from the sale of disclosure packets and transfer fees received due to the increase in homes sales as well as making the information more easily obtainable via MVF online vendor, Homewisedocs.com. Since inception of the online services in January 2013, revenues have been favorable to the budget and 2012.
Personnel & Benefit costs (ALL) – The favorable variance is due to numerous vacant full-time positions but offset partially by the hiring of a full-time, in-house general counsel. Part-time wages were favorable to the budget due to an earlier than expected retirement. Temporary/seasonal wages were also favorable to the budget due primarily to lower than expected wages paid to staff the pools and summer camp and class activities, but also included lower than expected temporary wages from Community Management.
Office Supplies (MVF) – The favorable variance in Office Supplies is primarily due to the change in toner purchases due to the outsourcing of the printer maintenance/service which includes toner. These costs are now included under Office Expenses. The net savings from outsourcing in 2013 was approximately $1,500.
Finance & Legal (MVF/DU) – The significant variance in Legal costs was due to the hiring of the in-house counsel. While offset by an increase in personnel costs, the favorable variance from decreased outside legal fees was over $100,000 vs budget.
This financial report is designed to provide a general overview of the Montgomery Village Foundation, Inc.’s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Office of the Executive Vice President, Montgomery Village Foundation, Inc., 10120 Apple Ridge Road, Montgomery Village, MD 20886.
We wish to extend a thank you to our new auditors, John Caldwell and Kim Calhoun, of Malvin Riggins & Company, P.C. for a successful first year audit. Also thanks to the MVF Audit Committee and MVF Board of Directors for their participation and assistance throughout 2013 and the audit process.
Respectfully submitted,
David B. Humpton, Executive Vice President W. Gregory Snellings, CPA Chief Financial Officer
